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Gold Fields Limited and Harmony Gold Mining Company Limited / MMC Norilsk Nickel / Competition Commission (86/FN/Oct04) [2004] ZACT 75 (18 November 2004)

.RTF of original document

COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA


                                                               Case No.: 86/FN/Oct04



In the matter between:

Gold Fields Limited                                                   Applicant

and

Harmony Gold Mining Company Limited                        1st Respondent

MMC Norilsk Nickel                                                    2nd Respondent

The Competition Commission                                           3rd Respondent

______________________________________________________________

Reasons and Order
______________________________________________________________


Introduction


1.      
Harmony Gold Mining Company Limited (“Harmony”), the first respondent, has launched a public take-over bid for a rival mining house, Gold Fields Limited (“Gold Fields”), the applicant. The bid is made in two stages. The first stage, styled the ‘early settlement offer’, is not made subject to regulatory approval, while the second stage, called the ‘subsequent offer’, is. Gold Fields seeks to interdict the early settlement offer, as it alleges that it amounts to the unlawful implementation of a merger.

2.      
The second respondent MMC Norilsk Nickel (“Norilsk”) features as a respondent, and the subject of certain of the relief, as it is alleged, by virtue of certain understandings that have been reached between the two firms, to be a party to Harmony’s scheme to effect control in the early settlement phase.

3.      
No relief is sought against the third respondent the Competition Commission (“the Commission”), which is cited as a respondent because of its interest in the outcome of the matter. The Commission did not oppose the application, but provided heads of argument and oral submissions through counsel addressing the legal issues in dispute.

4.      
The application raises a number of complex legal, questions, including whether the Tribunal has any power to apprehend an unlawful merger, and if it does, what those powers are, at whose instance they may be invoked and when. In addition it raises legal questions about when there has been an acquisition of control.

5.      
We have decided to deny the applicant relief for the reasons that follow. As is apparent from our decision, because we have decided that the early settlement offer does not effect a change in control, it is unnecessary to resolve definitively certain of the legal questions outlined above.


BACKGROUND

6.      
The events giving rise to this application commenced in March 2004 when Gold Fields was informed that Anglo American had sold its 20,03% shareholding in Gold Fields to Norimet Limited a wholly owned subsidiary of Norilsk (for convenience in this application we will refer to Norilsk as the relevant party). At the date of this application Norilsk still holds this number of shares making it the single largest shareholder in Gold Fields.

7.      
On the 11 August 2004 Gold Fields announced that is entered into an agreement with a Canadian mining company, IAMGold.

8.      
In terms of the IAMGold arrangement, Gold Fields and IAMGold had agreed on the pooling of Gold Fields assets located outside of SADC with the assets of IAMGold. In consideration for the purchase of these assets IAMGold will issue shares to Gold Fields, resulting in Gold Fields owning about 70% of IAMGold. According to Gold Fields if the transaction it proposes succeeds, IAMGold will be renamed Gold Fields International and will be the 7th largest gold mining company in the world. It appears that Norilsk, Gold Fields largest shareholder, was caught unawares by this announcement.

9.      
The Gold Fields’ board is now required to put the IAMGold arrangement to its shareholders for approval by a simple majority. It intends to do so at a shareholders meeting planned for 7 December 2004. Gold Fields argues that the purpose of this arrangement is to create a company with better access to international capital markets. However Norilsk holds that the proposal will result in a significant diminution of value for shareholders as a whole. Norilsk conveyed its concerns about the IAMGold proposal to Gold Fields management, but to no avail. It has accordingly announced that it will cast its votes against the IAMGold transaction.

10.     
Then on the 16th of October Harmony approached the Gold Fields’ board of directors with a proposal for a merger between Harmony and Gold Fields, in terms of which Harmony proposed to acquire the entire issued share capital of Gold Fields in exchange for the issue to Gold Fields shareholders of new shares in Harmony. Harmony also informed Gold Fields that it had received an irrevocable undertaking from Norilsk to accept the offer.

11.     
The Gold Fields’ board responded by saying that the proposal was insufficiently detailed for its consideration and indicated that if a more detailed one was forthcoming, it would be better placed to consider it.

12.     
Harmony did not revert to the Gold Fields board, but instead on 18 October made a public announcement of its bid for Gold Fields. A circular was issued on the same date. In addition because some 18.7% of Gold Fields shares are represented by what are termed ADS’s (American Depository shares) a registration statement had to be issued in terms of the United States Securities Act.

13.     
The Harmony offer is long and complicated, but only certain features are pertinent to this application.

14.     
Although Harmony has clearly stated that it intends offering to purchase all of Gold Fields securities it is doing so in terms of two separate offers.

15.     
The first offer Harmony has called the early settlement offer. In terms of this first stage Harmony offers to acquire up to 34,9% of the share capital in Gold Fields. Harmony will not acquire any more shares than this in the first stage and if more are tendered a pro-rating mechanism will be used to scale back the shares accepted to this number.

16.     
The only conditions attached to this early settlement offer are that certain resolutions are passed at a Harmony general meeting and are registered.

17.     
The early settlement offer was open for acceptance from 20 October 2004 and will close for acceptance on 26 November 2004. (Harmony has apparently undertaken to Gold Fields, in return for extending filing dates in this application, not to accept any shares tendered until that date.)

18.     
For present purposes, the most significant feature of the early settlement offer is that Harmony has not made the offer subject to the approval of the competition authorities. Gold Fields’ application rests on this omission.

19.     
The early settlement offer is to be followed by stage two, described in the Harmony circular as the ‘subsequent offer’. The subsequent offer commences a day after the consideration is settled in respect of the early settlement offer, which according to the circular is on, at the earliest, the 29th of November, but no later than the 3rd of December.

20.     
The subsequent offer, which is open for acceptance until 4 February 2005, is subject to a number of conditions. Those relevant for our purposes are:

•         That Harmony receives valid acceptances for over 50% of Gold Fields’ entire issued share capital;
 •         The proposed IAMGold transaction not being implemented for whatever reason, including Gold Fields shareholders not approving that transaction at the general meeting on the 7th December 2004;
 •         The merger being approved by the relevant regulatory authorities including the Competition authorities.


21.     
Observe that in terms of the subsequent offer notification to the competition authorities is mooted in contrast to the early settlement offer.

22.     
What is crucial to an appreciation of what is going on here, and why the relief sought, which we set out below, is thus framed, is the relationship of dates for acceptance and voting. In short what we are dealing with is a battle by each side to hold a bridgehead at the general meeting on the 7th December and that bridgehead is composed not of mortar or metal, but shares.

23.     
Harmony’ s early acceptance offer, albeit styled as an early offer to shareholders to realise value, is no more than an attempt to vote down the IAMGold transaction on 7th December. Harmony has been transparent about the fact that this is the way it intends to vote at the meeting.

24.     
The early settlement offer is thus timed to ensure that Harmony has these acceptances in its pockets at the relevant time. It is common cause that if Harmony receives its full quota of acceptances that, together with the Norilsk undertaking to vote its shares against the IAMGold transaction, 54,93 % of the shares will be available to vote down the IAMGold transaction.

25.     
The relief sought, which is aimed only at the early settlement transaction, is designed to prevent both Harmony and Norilsk voting against the IAMGold proposal on the 7th. Acceptance of the IAMGold transaction will defeat the entire Harmony bid.

26.     
Gold Fields seeks to invoke the Competition Act as its ally in the war. It seeks to persuade us that the early settlement offer amounts to an acquisition of control of Gold Fields, which control, it argues, will be implemented at the general meeting on the 7th in contravention of section 13A of the Competition Act. We are asked to interdict this implementation on the grounds that the change in control has not been approved by the relevant competition authorities.

27.     
Section 13 A states that:

(1)     
A party to an intermediate or a large merger must notify the Competition Commission of that merger in the prescribed manner and form.
(2)     
…..

(3)     
The parties to an intermediate or large merger may not implement that merger until it has been approved, with or without conditions, by the Competition Commission in terms of section 14(1)(b), the Competition Tribunal in terms of section 16(2) or the Competition Appeal Court in terms of section 17.


LEGAL ISSUES

28.     
Gold Fields advances three theories as to why Harmony will acquire control of it pursuant to the early settlement offer. Its main submission is that the early settlement offer is not severable from the subsequent offer and, hence, that one is dealing with a single offer to acquire control.

29.     
In the alternative, Gold Fields contends that if the early settlement offer is severable it should still amount to an acquisition of control because, with 34,9% of the votes, Harmony is able to control the majority of the votes at an annual general meeting and hence this amounts to control by virtue of section 12(2)(b) of the Act or section 12(2)(g).

30.     
Thirdly, Gold Fields contends that the irrevocable undertaking it has from Norilsk gives Harmony the ability to jointly control Gold Fields together with Norilsk. Again this would amount to control in terms of sections 12(2)(b) and 12(2)(c).

31.     
We quote the relevant sections of the Act relied upon here:


Section 12(1)(a)

For purposes of this Act, a merger occurs when one or more firms directly or indirectly acquire or establish direct or indirect control over the whole or part of the business of another firm.

Section 12(2)

A person controls a firm if that person-

(a)     
beneficially owns more than one half of the issued share capital of the firm;
(b)     
is entitled to vote a majority of the votes that may be cast at a general meeting of the firm, or has the ability to control the voting of a majority of those votes, either directly or through a controlled entity of that person;
(c)     
is able to appoint or to veto the appointment of a majority of the directors of the firm;
(d)     
……
(e)     
……
(f)     
…….
(g)     
Has the ability to materially influence the policy of the firm in a manner comparable to a person who, in ordinary commercial practice, can exercise an element of control referred to in paragraphs (a) to (f).


32.     
In order to frustrate Harmony’s allegedly unlawful purpose Gold Fields has approached us with an application for relief that in its totality is intended to interdict this scheme from being implemented.

33.     
It is appropriate now to consider the relief sought by Gold Fields.


PART A

The applicant intends to make an application for an order in the following terms:

1.      
The applicant is hereby granted leave to bring Part A of this application as a matter of urgency, and any non-compliance by the applicant with the forms, time periods and service provided for in the Rules for the Conduct of proceedings in the Competition Tribunal is hereby condoned.

2.      
Pending the final determination of the application set out in Part C below, a temporary order in the following terms:

2.1 The first respondent (hereinafter referred to as the “first respondent” or “Harmony”) shall be and is hereby interdicted and restrained from implementing a proposed transaction published by the first respondent on the Stock Exchange News Service (“SENS”) on 18 October 2004 (the “announcement”), including but not limited to the taking of any steps designed to achieve the implementation of, inter alia, that portion of the transaction set out therein described as the “early settlement offer” (hereinafter referred to as the “early settlement offer” or the “transaction”).

2.2. The first respondent shall be and is hereby interdicted and restrained from accepting the tender to it of any Gold Field shares or otherwise taking transfer of such shares in the share capital of the applicant as it may have accepted pursuant to the early settlement offer or otherwise.

2.3 The first respondent shall be and is hereby interdicted and restrained from voting, or otherwise exercising any rights attached to, any shares in the share capital of the applicant which it may have acquired pursuant to the early settlement offer or otherwise.

2.4 The second respondent (hereinafter referred to as the “second respondent” or “Norilsk”) shall be and is hereby interdicted and restrained from voting, or otherwise exercising any rights attached to, any shares in the share capital of the applicant which it may hold, insofar as such votes are exercised in respect of or in connection with or such other rights pertain to any aspect of the transaction proposed to be implemented between the applicant and IAMGold Corporation Inc, a company registered and incorporated in accordance with the laws of Canada (“IAMGold”), the details of which were notified to shareholders of the applicant on 11 August 2004 (the “IAMGold transaction”).


3.      
The cost of this part A of the application be costs in part C, the main application.

4.      
Granting the applicant such further and/or alternative relief as this Honourable Tribunal deems fit.

PART B

The applicants intends to make application for an order in the following terms:

5.      
The applicant is hereby granted leave to bring Part B of this application as a matter of urgency, and any non-compliance by the applicant with the forms, time periods and service provided for in the Rules for the Conduct of Proceedings in the Competition Tribunal is hereby condoned.

6.      
That service of this Notice of Motion be effected on:

6.1 Each of the shareholders of the applicant as reflected in the applicant’s register of members; and
        
6.2 Those persons named by the Central Securities Depositary Participants (“CSDPs”) administering the sub-registers of the applicant being the beneficial holders of shares in the applicant, as reflected in the records of the CSDPs, (collectively the “applicant’s shareholders”) by publication of this order and the Notice of Motion, within 7 (seven) days of the date of this order, in each of the Business Day, the Government Gazette, the Sunday Times, Rapport and Die Beeld.

7.      
That a copy of this Notice of Motion and the applicant’s founding affidavit (together with the annexures thereto) shall be available, during normal business hours, prior to the hearing of the above Honourable Tribunal for the application in Part C hereof at the offices of the applicant’s legal advisers, Edward Nathan and Friedland (Pty) Ltd (at the address reflected in Part A of this Notice of Motion). Further that, if requested, copies of such documents may be obtained, free of charge, on request, from the above named address.

8.      
That a subpoena, in terms of the draft subpoena attached to the founding affidavit to this Notice of Motion be issued.

9.      
That the costs of this Part B be costs in the cause of the application for the relief set out in Part C of this Notice of Motion.

10.     
Granting the applicant further and/or alternative relief.

PART C

The applicant intends to make an application for an order in the following terms:

11.     
The acceptance by and transfer of any shares in the share capital of Gold Fields (whether pursuant to the early settlement offer or otherwise) to and/or the exercise of any voting rights attaching to such Gold Fields’ shares by Harmony prior to the approval by the competition authorities of the acquisition of 100% of the issued share capital of Gold Fields constitutes implementation of a notifiable merger prior to the approval thereof by the Competition Authorities and, as such, is prohibited by the terms of the Competition Act (No 89 of 1998), as amended (“the Act”).

12.     
Alternatively, the early settlement offer (as described in the announcement (which is attached to the applicant’s founding affidavit marked NH1)) constitutes a larger merger, which is required to be notified to the Competition Commission in terms of the Act.

13.     
The first respondent, alternatively the first and second respondents jointly, are directed to notify the transaction to the third respondent as a large merger, in accordance with the requirements of the Act.

14.     
Pending the final approval, if any, of the acquisition by Harmony of all of the shares in the share capital of Gold Fields or some of the shares in Gold Fields pursuant to the early settlement offer (with or without conditions) by the Competition Tribunal or the Competition Appeal Court in terms of the Act:

14.1 The first respondent (hereinafter referred to as the “first respondent” or “Harmony”) shall be and is hereby interdicted and restrained from implementing a proposed transaction published by the first respondent on the Stock Exchange News Service (“SENS”) on 18 October 2004 (“the announcement”), including but not limited to any steps designed to the implementation of, inter alia, that portion of the transaction set out therein described as “the early settlement offer” (hereinafter referred to as “the early settlement offer” or the “transaction”).

14.2 The first respondent shall be and is hereby interdicted and restrained from accepting the tender to it of any Gold Fields shares or otherwise taking transfer of such shares in the share capital of the applicants it may have accepted to the early settlement offer or otherwise.

14.3 The first respondent shall be and is hereby interdicted and restrained from voting, or otherwise exercising any rights attached to, any shares in the share capital of the applicant which it may have acquired pursuant to the early settlement offer or otherwise.

14.4 The second respondent (hereinafter referred to as the “second respondent” or “Norilsk”) shall be and is hereby interdicted and restrained from voting, or otherwise exercising any rights attached to, any shares in the share capital of the applicant which it may hold, insofar as such votes are exercised in respect of or in connection with or such other rights pertain to any aspect of the transaction proposed to be implemented between the applicant and IAMGold Corporation Inc, a company registered and incorporated in accordance with the laws of Canada (“IAMGold”), the details of which were notified to shareholders of the applicant on 11 August 2004 (the IAMGold transaction”).

15.     
The cost of this application, including the costs of the application set out in Parts A and B above, shall be paid jointly and severally by the first respondent, and by such other respondents as oppose this application, the one paying the others to be absolved.

16.     
Granting the applicant such further and/or alternative relief as this Honourable Tribunal deems fit.


34.     
The Notice of Motion is thus composed of prayers for interim relief, Part A, prayers of a procedural nature ancillary to the interim relief, Part B, and prayers for final relief, Part C.

35.     
When the matter was heard on 12 November, Mr Van der Nest who appeared for Gold Fields, advised us that he conceded that the relief sought against Norilsk, although in Part A, was final in nature. He also advised us that Gold Fields no longer sought the issue of the subpoenas in respect of Mr Swanepoel and Mr Rozhetskin. As far as the remaining relief in Part B was concerned, that is, that relating to the substituted service on Gold Fields’ shareholders, he advised that if the Tribunal did not consider their joinder necessary, this too could fall away. Mr Van der Nest conceded that, if we were so inclined, we could consider the application for final relief in Part C now.


IN LIMINE ISSUES

36.     
The relief sought by Gold Fields is, to put it mildly, ambitious. We say this given the legal uncertainty pertaining to whether the Tribunal possesses any form of interdictory power over mergers. It is common cause that, in contrast with restrictive practices, no express power of interdict is conferred on the Tribunal with regard to mergers. Hence in order to ass